Credit Suisse Lowers China Solar Demand And Yingli Green Energy TP

By Shuli Ren

Credit Suisse lowered its 2014 demand forecast for solar installations in China from 12 GW to 11.5 GW and said the government’s 14GW target is hard to achieve. Here are analysts Patrick Jobin, Brandon Heiken and Maheep Mandloi:

The rebound in demand is contingent on policy changes to address the quotas on utility scale development and FiT disbursement or reforming the incentives for distributed generation (companies agree the 8 GW target is not achievable under the current policy).

All companies agree that project returns are attractive in China at 8-12% unlevered and over 15% levered. The issue, we believe, is that the realization of these returns is contingent on getting the FiTs timely and with certainty and minimizing curtailment.

As such, differentiation among companies becomes more important. For instance, companies such as Jinko Solar (JKS), Trina Solar (TSL) and Canadian Solar (CSIQ) have access to project financing, but Yingli Green Energy (YGE) and Rene Sola (SOL) do not:

Solar companies with strong balance sheets and more experience in downstream projects have established relationships with the China Development Bank (CDB) and other China banks for project financing. Jinko Solar, Trina Solar, and Canadian Solar in particular have established relationships with CDB for project financing. Others like Hanwha SolarOne (HSOL) and JA Solar may access capital eventually from CDB and others, but we believe that Yingli Green Energy and Renesola less likely to access project capital due to their strained balance sheets. Renesola only has $86.8m in unrestricted cash, $262.1m in restricted cash, and $505m in net debt; Yingli (YGE) has $182.6m in unrestricted cash, $279.6m in restricted cash, and $1.97b in net debt (by far, the highest in our coverage).

Project permits are also important. For instance, Jinko Solar, JA Solar (JASO) and Canadian Solar have enough permits but Trina Solar and Yingli Green Energy do have enough:

Access to project permits will tighten this year.

If the allocation of permits for utility scale projects is not expanded significantly, the demand for permits in China may exceed supply in 2H14. Several companies indicated that local governments have been issuing initial project permits above the allocated quotas for this year, possibly leading to a delay in interconnections or FiT payments of some projects until next year. We believe Jinko Solar, JA Solar, and Canadian Solar have permits for all of their projects guided for 2014, in contrast with Trina Solar and Yingli Green Energy which need permits for a meaningful portion of their guided projects.

Credit Suisse has a Buy rating on Jinko Solar and a Sell rating on Yingli Green Energy and Renesola. The bank lowered its Yingli Green Energy price target from $5 to $4 “following last week’s $83m capital raise and revise our 2014/2015/2016 EPS to ($0.44)/$(0.28)/($0.35) from ($0.42)/($0.32)/($0.41).”

There are 9 comments

This information is not correct or total rumor. As It spread the rumor for 2013 that the installation of solar was only 8 G, the fact was that it was 12 G.
The enviornmentsal situation in China is never so serious that the air pollution had impacted the common life of citizens. The most serious environment law has been issued recently that the officials at all levels could be down instantsly if the enviornment situation was not improved.
So the clean energy will not be slowed or cut at any degree. 14 G target is not changed yet.
These kind rumors are only scare the investors and make benefit for the wolve of wall street.

APRIL 28, 2014 2:51 P.M.

YGE wrote:

yGE is the #1 solar in the world of cource in China.
Yge is run by the Chinese government or military.
Its net worth or book value is at least 3x3 (stock price) i.e 9 dollars/share.
You worry yge will go under? That will not happen! simply.

APRIL 28, 2014 2:54 P.M.

Vidar wrote:

The market response doesn't make sense to me.
First, the article states that the CS forecast is down from 12GW to 11.5GW, a drop of only 5%.
Furthermore, from the article, Jinko and Canadian seem to be the least affected by the news. I.e., the article states:
"For instance, companies such as Jinko Solar (JKS), Trina Solar (TSL) and Canadian Solar (CSIQ) have access to project financing"
and furthermore:
"Project permits are also important. For instance, Jinko Solar, JA Solar (JASO) and Canadian Solar have enough permits"
Still, Canadian and Jinko are two of the more severly penalized stocks during todays trading, even though Jinko today announced a 21MW agreement with shipments starting next month.

How come?

APRIL 28, 2014 3:14 P.M.

Who Dat? wrote:

This research note is basically adding fuel to the fire on a lousy down day in the stock market. Good job, CS! Your timing couldn't' be more perfect. If you intention is to slam the stocks, I couldn't think of a better day.

In fact, it's nothing but noises. Whether China does 11GW, 13GW or 15GW is really irrelevant. What relevant is that they are showing growth in the Chinese market. IMO, it's best to have "moderate" growth rather than a hockey stick growth. We all know what happened when these Chinese solar companies ramped up their capacity, don't we?

Chjnese government isn't stupid. A reduction in "forecast" will help "level load" capacity and keep growth at moderate levels.

APRIL 28, 2014 3:18 P.M.

Al Bundy wrote:

Renesola is exiting the project development business. The analyst does not address this. As such, they have no need to finance something they no longer want to do. Instead, they are focusing on diversifying their customer base and expanding into more green energy products than just panels. Their OEM strategy will help them circumvent tariffs and benefit from higher panel prices if tariffs are enacted.

APRIL 28, 2014 3:55 P.M.

Diane Clayton wrote:

Sorry to see that Barron's is nothing but a rag for short sellers. I stopped buying for that reason. I don't need your noise I will stick with the facts.

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Emerging markets have been synonymous with growth, but the outlook for individual nations is constantly changing. Countries from Brazil and Russia to Turkey face challenges including infrastructure bottlenecks, credit issues and political shifts. Barrons.com’s Emerging Markets Daily blog analyzes news, data and research out of emerging markets beyond Asia to help readers navigate the investment landscape.

Barron’s veteran Dimitra DeFotis has been blogging about emerging market investing since traveling to India and Turkey. Based in New York, she previously wrote for Barron’s about U.S. equity investing, including cover stories and roundtables on energy themes. Dimitra was among the first digital journalists at the Chicago Tribune and started her career as a police reporter at the Daily Herald in the Chicago suburbs. Dimitra holds degrees from the University of Illinois and Columbia University, where she was a Knight-Bagehot Fellow in the business and journalism schools. She studies multiple languages and photography.